Applied Project in Strategic Real Estate Management

NAME:________________________________
APPLIED PROJECT IN STRATEGIC REAL ESTATE MANAGEMENT
EXAMPLE Applicable to the next three questions
A class B-/C office building located in a Class A location in mid-town Phoenix constructed in 1960, is
40 % vacant. Market vacancy is 12% for Class A buildings and 20% for class B. The prospective new
Buyer in under contract to buy this property for $27 million. The gross area of the property is 150,000SF
distributed on ten (10) floors. The developer wants to reposition the property into a Class A-/B+ office
building and sell it once stabilized within 5 years.
Purchase Price $180/SF X 150,000SF $27,000,000
Building CapEx $ 80/SF X 150,000SF $12,000,000
TI –New Leases $ 60/SF X 60,000SF $ 3,600,000
TI- Renewals $ 20/SF X 90,000SF $ 1,800,000
Commissions $ 10/SF X 60,000SF $ 600,000
Soft Costs $ 100/SF X 150,000SF $ 15,000,000
Total Project Cost $400/SF $ 60,000,000
QUESTION 1 ( 10 Points )
What kind of loan for this property in Phoenix would you select, a CMBS conduit loan or one from a
portfolio lender?
Discuss in detail the pros and cons of each kind of loan. (Use a grid format with bullet points).
A loan from the portfolio lender is that type of loan which is posed on the individual property and is
collateralized by the underling real estate and is generally held by the lender if the portfolio. One of the
feature that is risky in this loan is that this loan possess high rate of interest unlike in the CMBS loan,
but the best feature of the loans is that it has the facility of the renegotiation during its life cycle as the
owner of the loan still has the loan on its name in his books as full. There type of loans are not easy to
acquire, despite having enough flexibility in the hands of the borrower and also as it becomes riskier on
the fact that this loan can be availed only on one property1.
CMBS conduit loan on the other hand is normally known as the Commercial Mortgage Backed Security
is a type of the commercial loan where the similar loans are pooled together with the other commercial
loans and the securitization so that they are available for sale for the institutional investors in the
secondary market. The pooling is based on certain factors amongst one of the most crucial one is the risk
factors into trochees that are the sole in the market. This loan product is formed generally for the middle
market properties where the traditional lenders and the investors holding the debt are not allowed to
invest at all2. The generation of the lower interest fees and presence of the low risk factor of the
investment is the major reason. Further, there are several properties in the pool which would have to go
in default before the whole investment vehicle is ceased permanently. At times it becomes really
1 Adam B. Ashcraft, Kunal Gooriah and Amir Kermani, "Does Skinninntheegame Affect Security Performance?
Evidence From The Conduit CMBS Market" [2014] SSRN Electronic Journal.

difficult for the property to jump towards the next loan, after once pooled, securitized and sold into the
market because the owner of the loan by the tile has taken the loan amount out of the books and what
remain are the pieces of the troche which he owns.
In the position of the manager of the property of the Phoenix I the best plan that would fit all the
requirements is the loan from the portfolio lender. This option is choses as it has the ability to
renegotiate during its life cycle if in case the property is not meeting the targeted expectations as set.
While if the CMBS conduit loan is used for the property of the Phoenix than there are chances that the
property would fit into the pool of collateralized debt, yet this project is risky and not being able to
extend the terms of the payment will create a challenge for the developer, also if he is not able to comply
with their five year exit program3.
QUESTION 2 ( 10 points )
What tools and methods would you use to lease the vacant space in the Phoenix building example in the
above question? How would you structure your Leasing Campaign?
In the event that I was in charge of the renting of this Phoenix building I would gothoruhg the following
steps:
1. Analyzing the market date to comprehend the general market, submarket of property and any
contending submarkets.
2. List inborn attributes of the subject property, for example, its physical angles, mechanical
frameworks, subjective qualities, area and pleasantries.
3. Create grid of properties regarded to contend dependent on inherent attributes with data, for
example, complete area, accessible area, roof statures, year built and so on. This will enable us to more
likely see how our property is in competition with other property in the market.
4. Review inhabitants and new tenants in the market to comprehend whose lease or rent may come
up and what is the normal impression of occupants that are renting in the market is one of the core
information in the market.
5. Determine the value of the tenants and what they are searching for when hoping to lease new
space.
6. Re-look at rivalry to perceive what they are putting forth to meet these occupant needs.
2 Raja Almarzoqi, Samy Ben Naceur and Alessandro Diego Scopelliti, How Does Bank Competition Affect
Solvency, Liquidity And Credit Risk? (International Monetary Fund, 2015).
3 Joseph Philip Forte and Meredith J Kane, CMBS And The Real Estate Lawyer, 2016.

7. Look at moves up to build rivalry favorable position, for example, new entryway, façade
redesign, and expanded civilities and so on4.
8. Determine if consumption accelerates the competition so that there shall be no investment in the
areas which are potentially low and might not pay off.
9. Determine technique to comprehend what work will start things out, position occupants in
market, build up a rundown by sort of inhabitant use, build up a rundown of merchants regularly speak
to your objective occupants and set your normal lease, work, free lease, misfortune factor, accelerations,
administrations, electric and some other arranged things5.
10. Develop advertising technique to incorporate posting signs, web media, handouts, flyers,
occasions, letters, renderings, floor plans photographs and building determinations.
This would set an unmistakable spotlight on the best way to turn this structure around and what is should
have been effective. These features all the real areas in structure a leasing strategy, getting new
occupants into a structure and guaranteeing the returns of the investors must meet6.
QUESTION 3 ( 10 Points )
a) Discuss in detail why would you do a Management Plan for the Phoenix office building? (Use a
bullet format).
The management plan for the Phoenix office building is required as all the parties must be on the
parallel phases as this deal will have the enormous number of the parties involved right from the
lenders to attorneys, to lease agents, managing agents, asset managers. This plan will guide all
the investors with regards to the financial strategies, the alternatives if any available, gives an
insight of the relevant information of all the parties and also shares the strategy to move forward.
Moreover this plan also caters the incremental level of the financial analysis, how much capital
or the funds are required and for the same the write approval is received7.
b) Name the major components of a Management Plan. (Use a bullet point format)
The major components of the plan are divided into the different factors. These factors include the
analysis of the market, the estimation of the costs and the condition in which the inventory is or
the condition of the apartment, recommendation how the plan shall be operated and in what
manner, conducting the valuation process of the building before and the after and thereafter
4 Campaign Name Game" (2016) 18(4).
5
5"Tips For New Commercial Builds", BDC (Webpage, 2019) <https://www.bdc.ca/en/articles-tools/money-
finance/buy-lease-commercial-real-estate/pages/tips-new-commercial-builds.aspx>.
6 "3 Types Of Construction Management Plans", The Balance Small Business(Webpage, 2019)
<https://www.thebalancesmb.com/what-is-a-construction-management-plan-845376>.
7 Elements Of A Marketing Plan To Sell Or Rent Your Building - Fmlink", Fmlink(Webpage, 2019)
<https://fmlink.com/articles/elements-of-a-marketing-plan-to-sell-or-rent-your-building/>.

providing the recommendations and the conclusions8. After analyzing these factors it can be
stated that it is necessary to know all these factor and include them in the management plan as
this would deliver the answers to how the expectation of the owners will be facilitated, how
much capital investment is required in order to reach the desired position and how all the assets
will be managed.
Using the Harvard Business School Case Study for Busse Place please answer the
following three questions:
QUESTION 4 ( 10 Points ) HBS
What are the three most likely scenarios that the investors must face to deal with the pending cash flow
deficits? Discuss each scenario in detail. (Use a bullet point format)
The three major scenarios that are likely to be faced by if there is no increment in the cash flow are
outlined below.
Continuous funding of the deficit in the ray of hope that the cash flow will turn into the positive figure
soon
The regular attempts with the CMBS loan provider to set the structure of the loan according to the
situation
Lastly the default on the loan is so high that walking away is the only option left9.
Detailed Analysis
The bad thing on the part of the continuous invested in the project is that the investor keeps on investing
without even figuring out as to whether the returns are going to be availed on this particular investment.
This reflects that the continuous payments are made from the pockets of the investors and specially the
debt payments, leasing material and any other remaining operating expenses. Eventually there will a fall
in the return on equity, internal rate of return will also be suffered from such a situation and the assets
being overleveraged will affect the expected returns or deliverables of the investors10.
The difficulty in Endeavor to consult with the CMBS credit servicer again to rebuild the loan means
returning to Chesapeake Loan Services and making them aware of the fact that there was a default on
the loan unless there was a change in accordance with its terms. This could be troublesome as this credit
was made as a CMBS and has just been sold off into the market and now has a few proprietors. On the
8 Describe The Five Major Components Of A Project Management Plan", Parallel Project Training (Webpage,
2019) <https://www.parallelprojecttraining.com/blog/describe-the-five-major-components-of-a-project-
management-plan/>.
9 "Before You Sign That Lease...", Harvard Business Review (Webpage, 2019)
<https://hbr.org/1988/05/before-you-sign-that-lease>.
10 "Scenario Analysis - How To Build Scenarios In Financial Modeling", Corporate Finance
Institute (Webpage, 2019) <https://corporatefinanceinstitute.com/resources/knowledge/modeling/scenario-
analysis/>.